Poor risk identification major cause of SMEs failure

Poor risk identification is a major cause of failure and stunting of small and medium scale enterprises (SMEs) in Nigeria, experts have said.

According to the experts, who spoke at this year’s SME Forum organised by BusinessDay in Lagos yesterday, managers of businesses in this category often fail to properly identify, understand and manage risks.

“SME managers often do not know how important it is to have knowledge of strategic objectives; identify, assess and evaluate risks; compile risk register; suggest risk treatment actions; implement action plans; monitor and report risk treatments,” Joachim Adewusi, chief executive officer, Conrad Clark, said at the forum.

“SMEs must identify external and internal risks and think out of the box, rather than stick to customs,” he added.

Research has shown that 65 percent of SMEs fail within three years of start-up. Further research by the Manufacturers Association of Nigeria (MAN) has shown that most businesses in the country do not reach the 50-year threshold.

In 2007, Michael Gerber, a business skills trainer and founder of Michael Gerber Companies, identified 10 reasons why most businesses fail.

According to Gerber, poor management systems; lack of vision, purpose, or principles; lack of financial planning and review; over-dependence on specific individuals in the business and poor market segmentation/strategy, failure to establish or communicate company goals; and competition or lack of market knowledge; among others, were reasons for high rate of failure of businesses.

But Adewusi said poor risk management, where threats would be minimised and opportunities maximised, was often the reason behind failure of most SMEs.

Other experts at the event went a step further to identify the individual manager as the essential part of the risk management process. To them, inability of most managers of start-ups to ask relevant questions and work on their reputations was largely responsible for business failures.

They insist that just like flowers, businesses have roots, shoots and fruits, stressing that no business could move any step further unless it began from the roots.

“The biggest risk is you. The root involves the purpose, passion and perseverance. The shoot incorporates the message, offering and channels, while the fruit involves revenue, satisfaction and retention. You cannot reap the fruit unless your root is well-defined and good,” said Tunde Alabi, an expert on risk management.

In furtherance to the importance of risk management, experts have gone ahead to enumerate key qualities business managers must have if they are to scale over the turbulent hurdles of failure. While some identify vision or passion, others point to punctuality and access to finance, among others. But Alabi has a different formula.

“It is called the Magnificent Seven. It involves passion, research, marketing, management, people, process and sales,” he said, stressing that customers did not buy goods because they were cheap or good, but were simply buying the business owner.

Yvonne Isichei, executive director, Keystone Bank, stressed that if one’s risks matters were not dealt with, one’s business would not be sustainable, adding that the bank had N8 billion funding  for SMEs with the right structure and processes in place.

“In China, SMEs contribute 51 percent to GDP, but in Nigeria, it is way behind,” she said.

Frank Aigbogun, publisher, BusinessDay, said the reason for organising the forum was that economies around the world were built around a thriving SME sub-sector.

“We chose to focus on the theme, ‘Identifying, understanding and managing risks in SMEs’, because of our belief that whether the business is small or large, they all have to contend with risks,” he stated.

OLUYINKA ALAWODE & ODINAKA  ANUDU